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Changes to Dutch dividend withholding tax rules

Global Tax Alert

Today, the Dutch Ministry of Finance announced that it intends to introduce two important changes to the Dutch dividend withholding tax rules:

bring Dutch cooperatives into the scope of the Dutch dividend withholding tax rules and

abolish Dutch dividend withholding tax in certain situations.

In earlier letters dated November 27, 2015 and February 2, 2016, the State Secretary had already announced that an analysis would be made of the difference in the tax treatment between Dutch cooperatives on the one hand and Dutch public and private limited liability companies on the other hand. Although the latter companies must generally withhold Dutch dividend tax, cooperatives are exempt from that obligation (except in cases involving abuse). That is also the case where cooperatives are used as holding cooperatives in international structures.

As far as the Dutch government is concerned, this difference in tax treatment is not justifiable. Therefore, the Dutch government put forward a proposal today to eliminate this difference in treatment. Based on the proposal, so-called holding cooperatives are to be treated in the same way as Dutch private limited liability companies and as such should also be subject to Dutch dividend withholding tax.

Bringing the holding cooperatives into the scope of the Dutch dividend withholding tax rules is accompanied by another change to the Dutch dividend withholding tax rules. The Dutch government proposed to eliminate dividend withholding tax completely in cases where the shareholder in a Dutch company, or a cooperative for that matter, holds at least 5 percent in the Dutch company, the shareholder resides in a jurisdiction that has a tax treaty with the Netherlands, and the structure is not abusive.

The new rule provides for more flexibility for US multinationals doing business in or through the Netherlands to facilitate dividend repatriation free of Dutch dividend withholding tax. On the other hand, the inclusion of holding cooperatives into the scope of the Dutch dividend withholding tax rules could have an impact in particular on investment structures into the Netherlands through non-treaty jurisdictions. There is still some uncertainty on the concept of holding cooperatives, hence further clarification is expected to determine the exact impact of these proposed rules.

The rules announced today have been anticipated for some time now, and companies operating with a Dutch cooperative in their structure should seek advice to determine the potential impact to their structure.

The objective is to have the new act enter into force on January 1, 2018, at the latest.

Find out more about this development by contacting either of the authors.